Company Car tax has changed and left many businesses wondering if they should offer cash instead…
But then the new company car tax tables came out. You can get up to 0% BIK, and NI, on a ULEV (Ultra Low Emmission Vehicle) – read on to learn more….
A company car is probably one of the most popular perks for an employee, however, the potential tax implications are rather less appealing; choosing the wrong car can prove very expensive. With nearly one million motorists driving a company car, we explain how to choose the right one for your budget. As a company car is seen as an additional taxable benefit by the HMRC company car tax or benefit in kind (BIK) has to be paid. When you are given a company car, the P11D value of the vehicle is added to your salary, a tax is then taken from the final sum. Company car tax can be a daunting subject, but there are benefit-in-kind calculators on specialist websites that can help you calculate your tax outgoings on a company car, but basically to calculate the BIK tax, multiply the P11D value by the BIK percentage banding, then multiply that figure by your tax band – i.e. 20% or 40% and that is your annual liability.
If you are taking advantage of the company car scheme it is very important to know how much tax you will be paying, especially if you are the one making the decision on the vehicle.
The amount of tax that is paid depends on the following
- The P11D value of the vehicle (the list price of the vehicle plus delivery, VAT and any optional extras, less the cost of the road fund licence and first registration fee)
- C02 emissions produced by the vehicle
- Fuel type
- Vehicle usage
- Your personal tax rate (20%, 40% or 45%)
Company car (BIK) rates table
Guide to Company Car Tax: Petrol VS Diesel VS Alternative Fuels
Another factor to consider would be petrol,diesel or alternative fuels? Alternative fuels being Hybrid or pure Electric vehicles. Most diesel engines carry a 4% surcharge over petrol engines with the same CO2 emissions as they produce a higher amount of harmful gases. If you’re choosing between petrol and diesel for your next company car, you’ll need to work out whether or not you do enough miles in a year to make up the extra cost of a diesel engine in fuel savings for both your company and your private mileage. If a Hybrid or pure Electric vehicle would suit your day to day business needs and you have access to a charging point, then one of these as a company car could benefit you highly and reduce your company car tax. The Treasury has confirmed that company car drivers who choose an emissions-free electric fleet model will pay no benefit-in-kind (BIK) tax for the year as part of new efforts to encourage motorists to switch to green vehicles.
If you make the jump to electric models you will pay zero company car tax for the year from April 2020, one per cent tax from April 2021 and two per cent BIK from April 2022, the Government confirmed.
The measures are designed to increase the uptake of fully electric vehicles among fleets, which contribute to almost six in 10 new car registrations in the UK.
However, electric vehicles are not for everyone and can be on the expensive side. There are many reasons why you might prefer petrol or diesel with one of the biggest concerns being range anxiety.
When you’re thinking about getting your new company car it’s also worth considering whether getting a company van would be more tax-efficient for you and your business. Although there is still that anxiety for commercial vehicles around infrastructure and suitability – take your time to consider your options..
There are plenty of ULEV’s and Electric Vehicles to choose from that could save you a bundle on BIK and NI:
- BMW i3
- Toyota Prius
- Mitsubishi Outlander PHEV
- Porsche Taycan
- Nissan Leaf
- Jaguar i-Pace
- Volkswagen e Golf
- Mini Countryman Plug in Hybrid
Taking the cash alternative to a Company Car
Some companies offer the ‘opt out’ option to a company car. This is a cash allowance given to you each month to help with your personal and business motoring costs. This is normally paid as part of your gross salary and is still subject to income tax and national insurance. However, as with anything there are advantages and disadvantages to this. A company car is likely to be changed every few years and it’s possible maintenance and any repairs are covered by the business, protecting you against any unexpected bills and hassle. If you choose to ‘opt out’ you aren’t necessarily restricted to the list of cars offered by the company, however companies are still within their rights to put restrictions on ie engine size, style, age of car, colour and sometimes numbers of doors. Another thing to consider when taking the cash option is how much to budget from the allowance for things like servicing, maintenance, repairs, road fund licence, tyres and insurance. All this plus the vehicle itself, will have to come out of the amount given to you (after tax and NI deductions) each month by the company.
How do I claim the cost of fuel when I’m driving on work business?
Any work miles driven – excluding commuting to a place of work regularly – are reimbursed by what’s called the Advisory Fuel Rate (AFR). The rate is split into ten different categories: three for different engine sizes for petrol cars, three for diesel, three for the few LPG vehicles still around, and a rate for full electric vehicles.Hybrid and plug-in hybrid models, fall into the category based on the size of their petrol engine and ignoring any battery input.
The only other thing to note is if you are using your own car for non-commuting work business, claims are made using a different set-up called Approved Mileage Allowance Payments (AMAP). These are higher because drivers using their own car have to pay for business insurance, as well as the wear and tear, and the loss in value of the car caused by the extra miles. Therefore, the AMAP rates are 45p per mile for the first 10,000 miles of a tax year, and 25p per mile after that.
Free company fuel… is this actually free??
Free fuel…….sounds too good to be true? The enticement of free fuel, paid for by the company, is a strong one, but remember HMRC tax policies mean ‘free fuel’ is now taxed harder as a benefit in kind which can make it less attractive. However, around 180,000 company car drivers are still thought to get the benefit.
As the full taxable benefit depends on CO2 emissions percentage and fuel type, always check that any offer of free private fuel is worth it – you could be paying out more in tax than the fuel would cost you.
Is it worth it?
This all depends on how many miles you’re clocking up on your company car.
If you are on average paying out more for fuel than the car fuel benefit amount, then having a company car and receiving free fuel is worth it. But, if you don’t spend that much on fuel, then you’d actually be paying more with this benefit.
When to notify HMRC about your Company car
If your employer doesn’t deduct the amount in your monthly salary then HMRC need to be notified that you have this employee benefit (company car). Most employers will contact HMRC with this information via the P46 (Car) form, but you should confirm this with your HR department as it is the employee’s responsibility to ensure HMRC are informed of any changes. If the tax is not collected via your tax code for the year the benefit is received, it could mean an underpayment of tax which will be due the following tax year.
Guide to Company car tax; Jargon explained
Jargon surrounding company car tax may make it sound more confusing, we have broken down some of that jargon to help you understand all those important details-
BIK- this is any benefit which employees receive from employment, this benefit is not included in a salary. The obvious example is company cars, which are taxed according to the income of the employee.
Emissions- the amount of gas that emits from the exhaust. Measured in terms of CO2 for company car tax purposes.
VED-Vehicle Excise Duty (VED) – amount payable on all cars, including company cars, that is calculated based on CO2 emissions of the car
P11D- This form must be completed by the employer every year and sent to the HMRC
P11D value- The P11D is the list price of a car including VAT and any delivery charges but it does not include the first registration fee or road tax. Any factory options fitted to the car will be included in the list price and the P11d value.
Personal Tax allowance – Most people are allowed to receive a certain sum of money before having to pay income tax. This is known as the basic personal allowance. In 2019-20, the basic personal allowance is £12,500. The personal allowance is the same for everyone, but it is reduced if you earn more than £100,000.
AFRs: Advisory Fuel Rates-The reimbursement rates for employees who undertake business miles in a company car. These advisory rates are published by the HMRC and vary according to engine size.
Drivers – Whether you are taking the company car or the cash allowance it is so important to really consider different options and do your research. What was once regarded as a perk of the job has been firmly in HMRC’s sights to increase its tax revenues for the last 15 years but you can reverse this effect by looking at ULEV’s/Electric Vehicles which produce big savings for you and the business. Choosing the incorrect option for your needs can end up very costly to you.
For some, company cars are an increasing ﬁnancial burden, for others they still represent good value by reducing hassle and responsibilities, and the costs are worth paying in comparison with the increase in the costs of procuring and running a private car and many drivers miss that cash allowances are subject to tax deductions and include a budget for your insurance, private fuel and maintenance. Much depends on the type of journey and distances you drive too and how you will be reimbursed for fuel.
Business Owners/Fleet Managers – When looking at providing company cars and vans for your drivers you could be tempted to go down the allowance/cash route – after all its cheaper, quicker, easier right? Not always.
We recently helped a business who were looking to convert their 15 company cars into cash allowances, motivated by the rationale above, but actually worked out that this exercise would increase their spend by 150%! Not what they were hoping to do.
In fact that client now has reduced their fleet size by increasing salaries for some to 12 and now offers a company electric car or a cash allowance all managed by ourselves. This was deemed to be the most cost effective and suitability blended solution.
Another client recently looking to grow its sales force by over 20 reps this year assumed that they would fund business travel not by an allowance but by way of the AMAP 45/25ppm rates covering all expenses for the drivers.
However, at 24,000 business miles per annum that would equate to £600-£700pm motoring costs whereas in fact the provision of company cars plus fuel cards/charge points will not only give the company a saving but also provide much needed consistency but also turn them into mobile adverts and give them absolute control over their fleet for compliance purposes plus a benefit for their recruitment efforts.
In short, think it through. Talk to experts and make sure you consider all of the above.
Keep an eye out for this guide in the form of an e book – coming soon to a KeyFleet website near you!
© 2019 KeyFleet / Marc McLoughlin